Let's hope London's bankers were watching the Chancellor of the Exchequer announce an increase in the levy on bank balance sheets on Wednesday. The measure was announced in virtually the same breath as the move to cut, by a percentage point, the rate of corporation tax that companies pay on their profits.
George Osborne made clear that the higher levy was expressly intended to deny the banks the benefit of the tax cut. That is how far out of favour U.K. banks have tumbled since the great taxpayer-funded rescue four years ago. It is a reminder of how far they still have to go to get out of the way of populist politicians.
There is no point in complaining about the levy. It does not appear to be much – the higher level, from next year, is 0.13 per cent of banks' balance sheets from just over 0.1 per cent. But it raises a tidy £2.5-billion ($4-billion) a year for, you know, schools and hospitals. This is the price the banks are paying for the billions of pounds of taxpayer support – direct and indirect – they received after the collapse of Lehman Brothers and the global banking crisis.
The higher levy will take effect in January. The cut to corporation tax, to 21 per cent, will be effective from 2014 (it will be 23 per cent from April next year). As Mr. Osborne said, "making banks contribute more is part of our major reforms to the banking system." That makes good politics. The trouble is that it is terrible banking policy. Since the banking crisis, U.K. banks have faced a regulatory and public backlash unprecedented in scope and cost. The fact that they are to be denied the benefit of the corporation tax cut – a cut which is good news for the rest of Corporate U.K. – shows how much they are still prone to political interference. The way to get over that is to become profitable, stable and robust enough to justify telling ministers to get lost. Alas, U.K. banks are still far from that happy state.